Paths to 2050

Government legislated for net-zero by 2050. That's a target - a destination. Not a path for getting there.

Economists are broadly of the view that prices can guide us to that target. Set a declining cap on the ETS to get to net-zero and let prices and anticipated prices provide the signal of the best path to take. Prices adjust; the cap binds.

There's fiddly stuff around how the legislation works. Government wants to hit annual emission budget targets and that makes things more complicated. You can buy and store credits, and redeem them whenever you want. 

But none of that really matters if what you care about is a sharply declining net emissions path to 2050 and maintaining net-zero thereafter. Take net current emissions. Put a dot on the chart. Set net emissions to zero at 2050. Draw a line between the points. I don't care whether you want to make it linear, concave, convex, whatever. Take the area under the curve above the x-axis. Announce "This is the total volume of credits that the government will auction between now and 2050, and here's the annual path for our auctions. Do what thou wilt."

Does it matter then if somebody buys a pile of credits now to use later? No. The area under the curve is the area under the curve, and the binding cap binds. If you overshoot the annual emission budget in one year it will necessarily be because you've undershot it in another year. Actual redemptions will wind up either being concave, convex, linear or whatever as emergent property. The total volume is fixed. The shape that the curve in redemptions takes will be driven by a big complicated mix of stuff that the government is best not worrying about. It'll reflect expectations around tech and cost changes over the period. 

People tie themselves up in knots about how maybe the ETS has a soft cap because credits can move from year to year. But none of that affects net emissions between now and 2050 unless government does something stupid like increase the volume it puts up to auction in later years in response to current stockpiling. 

There are tons of potential paths between here and 2050. I'm sure not wise enough to be able to say "This! This is the best path! And here is the number of doctors we will need each year from now until 2050, and the number of bakers, and the number of bus drivers...." 5-year plans don't work and 30-year plans will be even worse. Set the target and let people choose their paths to get there. 

Olivia Wannan has a column up. She casts me and Matt Burgess as being on one side, with all the environmentalists on the other. 

Of course, the survey of economists within the past month had nobody really disagreeing with us. Use the ETS to deal with carbon; if there are other policy objectives, use other policy instruments to deal with them; use a carbon dividend to offset distributional consequences. 

There is one bit where I'm really kicking myself for not having explained it more clearly. 

It just hadn't occurred to me that people wouldn't see this. And I wonder whether there is a bit of artfulness worked into the Commission's workings.

Burgess uses the commission’s work to argue “existing policies already have New Zealand on track to deliver net-zero emissions by 2050”. Therefore, further efforts to tackle gross emissions may be unnecessary and expensive, he argued.

However, in the commission’s scenario, achieving net-zero in 2050 isn’t permanent. By 2065, planted forests would come up for harvest and net emissions would spike up.

This would violate the Act, which requires all budgets after 2050 to also achieve net zero.

 ... Asked about the option to front-foot gross emissions cuts to prevent the bump from 2065, Crampton says that the country could – at that point – decide its cheapest available option. This could be further gross emissions cuts, more trees, or new tech such as carbon removal.

“It seems a mistake to require substantial reductions in gross emissions now and over the next decade, in case of reductions in forestry sequestration a half a century from now…. [It] is a large bet that none of the technologies under development will wind up being able to sequester carbon at any reasonable price.”

You can't have an upward bump in net emissions after 2050 if a binding cap at net zero is maintained. Prices might go up, but net emissions wouldn't. Every tonne of emissions has to be met by a surrendered credit, and that credit will represent a tonne of removals.

Under the Commission's modelled scenario, they must either be fixing the price to maintain $50 after 2050, with the cap adjusting, or the cap must be gone. The bump from 2065 can't happen if net-zero in the ETS is maintained. Prices would go up instead. 

I suspect that there's a bit of artfulness in the definition for Figure 6.4 (described in Section 6.3), where emission projections are made from 2050 "if there were no further forestry planting or policy changes", in a scenario where carbon were $50/tonne. 

If nobody specified that the ETS cap continues after 2050, then net emissions would go back up if you assume that a policy change would be required to maintain the cap from 2050. I think the more natural assumption is that the net-zero cap is maintained after 2050. 

I have a query in with Climate Commission checking this. It would be a bit on the nose to claim that relying on the ETS isn't enough because of bounce-back after 2050, if that bounce-back is due to an assumption that the ETS cap stops holding after 2050. 

After 2050, so long as the ETS binding cap is maintained and the government is no longer auctioning credits, net-zero is maintained. You don't get an upward spike in emissions. You'd get price movement. And the anticipation of price movement would drive investment and other activity ahead of the price movement.

If you want a guarantee that net-zero is maintained after 2050, legislate to maintain net-zero after 2050. Surely that makes more sense than forcing through a bunch of industrial policy in the next 5-10 years. 

UPDATE: I have had this confirmed. The work at Figure 6.4 only models the effects of a $50 carbon price. The ETS isn't really in this scenario. It's just seeing whether a $50 price drives things to net zero or not if a lot of tree planting is allowed, and how much tree planting that might be. The upward blip after 2050 can happen because there is no cap on emissions in that scenario - just a $50 carbon price. If you maintain a cap at net zero, you will have net zero. Obviously. Because a binding cap binds. This should be obvious to anyone who understands this area. 

RUC rebates - how would you do it?

Drivers of diesel vehicles pay their share of road building and maintenance costs through road user charges, levied per kilometre driven, with higher charges for bigger and heavier vehicles.

When the government announced a petrol excise holiday in response to rising fuel costs (a silly policy), it obviously hadn't thought through how to apply it to Road User Charges.

If you were the poor official tasked with making this work, how would you do it? 

The complexity isn't in that there are lots of different charges for different-sized vehicles - you can sort that out with a calculator.  

The complexity rather is that:

• Drivers buy RUC in advance of using it, generally in increments of 500 or 1000 km;
• You can buy large amounts of RUC. There's *some* limit on it to prevent stockpiling against future levy increases, but as best I can tell, I could go and buy 99,000 km of RUC right now;
• Cars and trucks transfer ownership;
• Amount driven varies considerably across people and vehicles, and potentially over time as well.

All of this was obvious when the government did its too-typical government thing and just announced the policy without having worked through any detail. Normal process followed by better governments will first canvass the Ministries for advice about how to do the thing, put up options, consult with affected stakeholders to see what they've missed, update the options, and pick something that won't be completely terrible. 

It's pretty obvious they didn't do any of that.

So, if you were the official told to sort this mess out, what could you do?

The simplest first cut that would work for most vehicles would just base it on average monthly kilometres driven between Warrants of Fitness. Odometers get checked at WoF. New cars can go a couple years between WoFs though. 

So announce that every diesel vehicle will get free RUC based on average monthly kilometres travelled between the last WoF and the next one, after the next WoF odometer check. Whatever the percentage reduction in petrol excise was, apply that percentage to average monthly kilometres driven, multiply by 3, award the RUC at the end of the period.

But that can be a long way off for some vehicles. So you'll need to make provision for that. Say that diesels can go into a VTNZ or other WoF location for an odometer check and immediately be awarded RUC based on the average kilometres driven per month since the prior odometer check (so long as that was at least a month earlier). And you'll have to pay those centres for doing the odometer checks and filling in the paperwork. 

And then it starts getting complicated.

The petrol excise holiday is free money, not free petrol. So you'll have to give an option for a cash-out in lieu of a RUC award. Some people might prefer having the cash; others will be planning on selling the vehicle before they'd use the RUC. But you're going to need some payment mechanism and that's going to be harder than just figuring out how to put free RUC onto a licence. 

Some vehicles will have changed ownership since the last WoF. Was the odometer checked when it was sold? The owner will claim that the car got a lot less use under the prior owner and so the average will be wrong. What do you do with that? They might not be lying. 

Still others will claim that their vehicle is used very intensively during the period that coincides with the petrol excise holiday, and not much during the rest of the year. Many of them will be lying. But some could be telling the truth - and you just won't hear much complaint from those who don't use their car much during that period and really use it during the rest of the year. 

In both those cases you're then going to need to let them go and get their odometer checked to establish a baseline, then get checked a second time. The queues at the odometer checks might get long. And you're going to have to pay twice for the checking. 

All of that sucks. For the simple case where people are happy just to get free RUC after their next WoF, it's pretty easy. But there will be plenty of people who aren't. And for them, you're likely going to need some odometer checking system, and a way of paying people out. 

But other options aren't great either.

If you let people buy RUC at a discount they can just buy tons of it to use later. Petrol is expensive to store. Unless you've got a giant farm tank kicking around, you're going to spend more on jerry cans than you'd save in excise discounts. And storing it in other containers would not work out well. You can't just stick it into an old milk jug and hope you have reliable petrol that hasn't leached out (or had plastic leach in) months later. But RUC - that's just a piece of paper. 

You could limit the amount that people are allowed to buy during the period, but how do you know how much somebody really needs to drive? You can't base it on prior driving history either because needs may have changed. It would sound simple to just look at the total amount of RUC previously purchased, figure out the average monthly amount used, and give a discount on buying a 3-monthly amount and no more - but you'll hit into all of the problems around people with idiosyncratic usage and then you either have to tell them to lump it, or set up all of the odometer checking stuff. 

Anyway. Jo Moir put the questions to Minister Wood, and got an answer entirely consistent with that the government put zero thought into this stuff before announcing it was going to do it. 

Last week Transport Minister Michael Wood confirmed RUCs would be cut across all 85 vehicle classes by 36 percent between late April and late July, allowing time to implement the changes.

“I want to assure road user charges payers they will get three months of reduced rates, even with the later start date. The complexity of road user charges means that a few more weeks are required to put the reduced rates in place,’’ Wood said.

For two weeks Newsroom has put questions to Wood’s office asking how the Government will stop diesel users from rorting the discount by stocking up, and whether people who had bought RUCs prior to the discount period would be compensated.

The only response Newsroom has received to date is that “agencies are currently working through the implementation of the announced RUC changes and any flow-on implications’’.

Wood’s office told Newsroom last Wednesday, and reiterated on Monday, that the minister is expecting further advice in the coming days.

Whoever in the Ministry has been stuck having to square this circle, because the government went off and announced something that couldn't obviously be made tractable, deserves a beer. 

Ardern told Newsroom the Ministry of Transport and Waka Kotahi knew the Government wanted to find a way to offer relief and weren’t caught on the back foot when the announcement was made.

She insisted the delay was simply a case of working through a complex problem and communicating it to diesel users and the trucking sector as quickly as possible.

For those needing to purchase more RUCs ahead of late April it remains to be seen whether they’ll receive all the 36 percent discount, and when it will back-date to.

No new advice on how to overcome the issues with the diesel discount was presented to ministers at Cabinet on Monday.

What a mess. They should have just announced a carbon dividend. 

FWIW, we bought a diesel back in November. We're a one-car family; waiting 2 weeks for a new alternator to show up for our old Honda Odyssey wasn't great. So we got a Mazda CX-8. Our first diesel and our first encounter with the RUC system. 

It's all pretty straightforward, but I really didn't like the risk of running out of RUC before the next batch of RUC showed up in the mail, so I bought 5000 km worth of it - shortly before the excise holiday was announced. 

I will buy as much RUC at a discount as is permitted by whatever system they set up. But I'd really not want to have to drive somewhere to get an odometer check. Ugh.

Biofuel mandates

Biofuel mandates never made any sense. Critiques of American biofuel mandates go back decades, arguing that creating the ethanol to blend takes more energy than you get out of the stuff at the end. 

New Scientist ran a column a couple of weeks ago arguing that biofuel mandates should be abolished, now, as part of the response to war in Ukraine. It's one way of quickly getting more land into food production, and out of value-destroying biofuel production. 

It is an odd time for the New Zealand government to reaffirm that it wants a biofuel mandate.

The Prime Minister says the Government's planned biofuels mandate will help create long-term stability in the fuel market, something she says recent price volatility has shown a need for.

None of that makes much sense. Cutting a small bit of petrol or diesel out of a fuel mix, to add in something that's a heck of a lot more expensive, might very slightly reduce price variability of the finished product if biofuel costs are less volatile than global fuel costs, but at a price that hardly worth paying. It's like saying that you avoid price volatility in aluminium by requiring that silver be added to aluminium foil. 

Biofuel mandates are bad to start with, but they're doubly-silly when transport is in the Emissions Trading Scheme. If carbon prices rise sufficiently, maybe biofuels will become a cost-effective way for fuel companies to avoid having to buy as many costly carbon permits. Biofuels then get brought into the system when it makes sense to bring them in. Mandating it forces things, regardless of cost-effectiveness.

A lengthy snip from the New Scientist piece below. 

The war in Ukraine has already caused food prices to shoot up as global markets anticipate a loss of wheat and maize exports from one of the world’s largest producers of these crops. But Europe and the US could more than compensate for the loss of Ukraine’s exports by diverting crops destined to be made into biofuels into food production instead. This would bring food prices down and help prevent a major global food shock.

On 9 March, Ukraine banned most food exports to try to ensure that its people don’t go hungry as Russian forces invade.

Food prices were already at the highest levels for 40 years, says Matin Qaim at the University of Bonn in Germany. This is for many reasons, including poor harvests because of extreme weather driven by global warming.

Quickly increasing the supply of food crops is difficult. But a large proportion of food crops aren’t eaten but converted to biofuels. Globally, 10 per cent of all grain is turned into biofuel, says Qaim.

In the US, a third of the maize grown is converted into ethanol and blended into petrol. Around 90 million tonnes is used for ethanol, nearly double the 50 million tonnes exported by Ukraine and Russia, says Qaim.

In the European Union, 12 million tonnes of grain, including wheat and maize, is turned into ethanol, Qaim says, around 7 per cent of the bloc’s production.

The EU also produces large quantities of biodiesel. It turns 3.5 million tonnes of palm oil alone into biodiesel, says Qaim. “That’s almost the amount of sunflower oil coming out of Ukraine and Russia.”

Governments have the power to change this, says Ariel Brunner at Birdlife International. “Because the biofuel market is entirely driven by subsidies, you can unplug it literally with the stroke of a pen,” he says.

If the US and Europe were to decrease their use of ethanol made from grain by 50 per cent, they would effectively replace all of Ukraine’s exports of grain, Tim Searchinger at Princeton University has calculated in response to a question from New Scientist.

“This is one of the few really quick things we can do,” says Brunner. “We are literally burning a hell of a lot of food.”

One country has already done just this. On 11 March, the Czech Republic ended its mandate requiring ethanol to be blended with petrol. It did this to reduce the costs of fuel rather than food, but Brunner is calling for other countries to follow suit.

“It absolutely would make a difference. It would begin to relieve prices immediately.” says Jason Hill at the University of Minnesota in St Paul. “It would also send a signal that can be acted on immediately by farmers. Northern hemisphere farmers are deciding now what to plant.”

The US Environmental Protection Agency has the power to waive the requirement to blend ethanol into fuels, says Hill. “The EPA could very quickly send a signal that ethanol is not needed.”

Temporarily halting biofuel mandates wouldn’t be popular with farmers. The powerful agrobusiness lobby in the US is currently demanding the opposite, that biofuel production is increased in response to the rising oil price, says Hill.

The government's biofuels factsheet notes that more than 60 countries have biofuel mandates. They'll have to cut the Czech Republic from the list I guess. 

Science funding

Michael Cameron at Waikato has a great post up on the state of social science research, the government's Green Paper on research funding, and an old report I'd missed from Superu's David Preston. 

Probably the key thing that stands out from this report (aside from the fact that it is clearly a parting shot from Superu, which funded the report), is the highly political nature of social science funding. For example, Preston notes the problems associated with multi-sector research institutions that sit outside of core government services:

While this position outside of government proper gives the institution more independence, it also makes the entity more vulnerable to unfavourable reactions from the government of the day. This is especially so if it is providing advice or information on politically sensitive issues. The government cannot do without its core government departments, but it can do without particular advisory bodies or research institutions.

A related example is the closure of the Social Policy Journal of New Zealand, which had been set up and run by the Social Policy Agency, part of the Department of Social Welfare:

No official reason was ever given for the closure of the Journal. However, informal sources commented that an article about to be published included information which indicated that a statement made by a Minister was inaccurate. Publication of the issue was delayed until public interest in the topic died down and it was decided to cease publication of the Journal, apparently to avoid future difficulties with Ministers.

The development indicates the difficulties of maintaining the ability to publish research findings within a politically sensitive environment in a government department.

All of this suggests that social science research institutions are always in a precarious position, reliant on short-term funding sources and beholden to the political whims of government. Preston summarises the various reviews of social science research that have been undertaken since the 1970s (of which there have been many). One common theme across those reviews is the need for a social science research institution with a sufficient level of baseline funding to maintain core research activity. Preston uses the example of the Brookings Institution from the U.S., which admittedly is not funded by the government, but has had a lasting impact on policy development and is generally well respected.

I take as conclusion that the NZ Initiative should be about four times bigger than it is, and that Motu could be a little bit bigger too. 

The supply of specialists

Monday's column hit on regulatory barriers to entry in medicine that really look like cartel-enforcement mechanisms. Westpac had this note in 2016:

Industry sources had several concerns about competition or the lack thereof in provision of healthcare and social support services, and about differing standards set for public and privately contracted providers of these services. 

One of the chief concerns was the cost of specialist care in New Zealand relative to many other countries, and the incentives specialists had to work in private healthcare rather than public healthcare, which exacerbated the problem. Some laid the blame at the door of the specialist colleges, which set the standards required before a specialist could practice in New Zealand. 

While acknowledging the importance of ensuring standards were sufficient to keep patients safe, there was concern that colleges acted as gatekeepers to limit the supply of specialists in New Zealand. This all but guaranteed that those who made it through the process earned high salaries. This monopolistic supply (increasingly requiring a fellowship on top of other qualifications) was having such an effect that some thought New Zealand now had an oversupply of GPs. Many people went part way toward becoming specialist before dropping out because the requirements had just become too restrictive, even though they were capable of practising at specialist level. There were immediate impacts on public healthcare provision due to cost pressures and time delays, yet the DHBs we spoke to appeared to believe there was no way around this hurdle.

HT: David Norman 

Afternoon roundup

The closing of the browser tabs, so the poor thing can reboot, brings some worthies:

• Work from home is proving sticky in New York. The number of workers going into NYC offices is well under half of what it was pre-Covid. They're looking to turn underused commercial skyscrapers. That's what living with Covid looks like, in places that have been living with it longer than us. I don't think removing NZ's traffic light settings are going to return us to December 2019. 
• Nice. Now do contracting for PCR testing. 
• Face it. The NIMBYs are going to try to block your development in court no matter what you do to appease them. Spread the costs of inevitable lawsuits across more dwellings.
• It's not cancel-culture, it's cancel technology. 
• The Parliamentary Commissioner for the Environment warns against locking into hydrogen. Always the danger with winner-picking: you might bet the wrong one. Why not just let ETS prices take lead?
• Oh this is neat. ORBIS gives you the travel time between places in the Roman world. Rome to Alexandria in July? 14 days by fastest route and by cheapest route. Rome to Londinium? 39 days by cheapest route; 27 days by fastest route. 
• Fix the select committees already. 
• Covid testing is cheap relative to the alternative, but costs are still adding up for businesses.
• The return of the shibboleth.
• This looks fun: Townscaper.
• NZIER's tallied up employment, contribution to GDP and such for the alcohol sector. Here's the media release from the NZ Alcohol Beverages Council, and here's the report. We have 134 distilleries! There's a lot of the usual drill in portraying employment as a benefit rather than a cost, but it's a useful compilation of a pile of stats. I expect I'll be regularly googling the blog here to re-find the link to it. 
• Paranoia about the Mont Pelerin Society. Alas, it's just not that influential. 
• Would that more public goods could be coin-operated. 

Cost-disease socialism

I love this way of framing things.

When you set a pile of regulations that make supply highly inelastic, and then deal with resulting voter complaints about it through demand side subsidies, you get cost-disease socialism. 

Good piece in Discourse drawing on work by Sam Hammond and the Niskanen Centre. 

Yet notice that the expenses that are relentlessly rising are in areas that have been the object of decades of government efforts to make them more affordable. How did that happen? I call this the “paradox of subsidies,” in which the very same government subsidies that are supposed to make a good or service more affordable just drive prices higher and make it less affordable.

Easy to see it in NZ as well.  

Nights - the recommencement of history?

For this week's chat on RNZ Nights, Bryan wanted to talk about Ukraine and revisiting the End of History. Not my specialty - it's rather Oliver's, but I'm always game. 

I'll usually put together a short set of notes before the chat, just to sort out my own thinking and to provide a bit of a heads-up about how I'm seeing things. 

These were this week's notes. I've tidied things slightly and added a few links. 

1. Libertarianism has always had less to say about foreign policy than about domestic policy. The main bottom lines have been:
1. Foreign adventurism is bad, and makes its way back home (see for example US police departments kitted out with army surplus stuff like armored personnel carriers);
2. Free trade is good in its own right, and also fosters friendlier relationships;
3. Open borders, or as close to it as possible, are also good – though there is a reasonably-sized cohort of anti-immigration libertarians;
4. Be sceptical about government calls to go out on foreign adventures. War is the health of the State, and the State will go looking for reasons for having wars.
2. It’s also an area where you’d have one of the more major splits between libertarians and, for want of a better term, neoliberals.
1. Libertarians will often try to start from a principle of non-aggression: that initiating the use of force is always wrong. You can hit back, but you can’t hit first. And what holds for people holds also for governments. There is a deep pacifism built into libertarianism. If it’s wrong for me to go out and hit somebody, it’s also wrong for the state to do it.
2. That leads to arguments that foreign intervention that isn’t requested has to be wrong, that regime-change and nation-building programmes are wrong per se rather than that they just are prone to going badly and too risky to be a good idea. Free trade with all and entangling alliances with none as general principle. They warned that US bases in Europe and elsewhere did more to provoke harm by annoying locals and discouraging them from building up their own defences.
3. ‘Neoliberals’ have been happier to support the web of institutions that make up the global international liberal order, including alliances like NATO.
3. End of end of history?
1. I am not a Fukuyama scholar; I’ve only had a passing reading. But he pretty clearly meant something different than how he’s popularly portrayed. He wasn’t saying that events would stop happening. Rather, that there was no successor ideology – a broad view saying how a polity and its economy should be structured - offering competition to broad western liberalism at the end of the 1980s. There could be particularistic ones, but nothing with the claims to global applicability that each of Marxism, Fascism, and Liberalism pretended. Marxism had obviously collapsed from within; the Soviet Union was still there but nobody living there believed in it and, more importantly, they all knew that none of them believed in it. Fascism had failed. Nationalisms are particularistic: you don’t get a global Canadian nationalism. And Islamism held little appeal for non-adherents.
2. Fukuyama did argue against Krauthammer’s suggestion that Russsia could revert to a nineteenth century imperial version of itself – which it’s now looking like. But again, is it a competing ideology? There are a few fans of Putin internationally, but it’s not really an ideological system that says how a state and economy should organise itself. And it’s manifestly unclear at this point whether Russians at large are Putinists. It seems rather a failed gamble by a personalistic despot whose domestic support was waning under a weak economy. I really don’t think Russia provides any aspirational model for others. They’ve a hollowed out economy, largely reliant on natural resource extraction that’s easy for the state to dole out as favours. And they’re so rife with corruption that their army’s a mess.
4. Libertarian and neoliberal prescriptions?
1. First big caveat that this ain’t my field. I’ve got reckons. In economics, I know what I’m talking about. Here, I’ve got reckons. But at least the things I'm suggesting won't do any harm.
2. If we start with nervousness about interventionism, worries about militarism, and we don’t want to provoke a nuclear exchange, a few things seem to follow from that.
1. Libertarian Bryan Caplan has suggested payingfor defection. Offer $100,000 plus EU Citizenship to any Russian deserter. Surrender to Ukrainian forces, get a ride to the border, get your money, start a new life.
2. Even if you paid off 200,000 Russian troops, that’s only $20 billion. Less than a fifth of what Germany’s now planning on spending on defence in 2022 alone.
3. The Cato Institute has echoed that suggestion, urging that America take in every possible refugee not only from Ukraine but also from Russia. The UK’s Adam Smith Institute has argued the same point: waive all visa requirements for all Ukranians for at least 5 years, with paths for asylum, longer term visas and citizenships. Let them live, work and study in the UK. And they argued for making it dead simple for highly skilled emigrants to flee countries suffering from conflict or oppressive regimes, including Ukraine, Russia and Belarus. That exodus would weaken the Russian state as much as anything. Remember that the Soviets had to put up walls to keep people from fleeing, because they knew the damage that would do.
4. One story last week showed how Ireland was making part of it work. Ukrainian refugee teachers were being hired into Irish schools to help teach Ukrainian refugee children. I love it. Here they’d be tied up in arguments about professional certification and licensing for a decade before they’d be allowed to do anything.
5. NZ has done some good on this front. Ukranian family members of Kiwis can come in. But could we do more? Could we expand the trial refugee sponsorship regime to let those without families in Ukraine also sponsor people to join us? We would want to ask Poland whether we do more to help by bringing people here or by sending them money to help accommodate refugees there, but we should consider those options.
6. Part of the overall problem has been European and western reliance on Russian oil, and Europe’s shuttering of nuclear plants in response to environmental activism that now seems to have been at least part-funded by Russia. New Zealand’s oil and gas exploration ban: does it do more to reduce global net emissions, or to increase the world’s relative reliance on places like Russia and Saudi Arabia?
5. Finally, it has been encouraging to see the West as West reasserting itself – and again West as ideal rather than geography. Japan is West. European Belarus is not.

Competition in accreditation and certification

James Hogan makes an excellent point on the doctor cartel. I'll quote it below, mildly edited to put the links in:

In this link, Specialists must work under supervision for six to 18 months are the magic words, "The relevant specialist medical colleges complete these assessments and provide advice to Council."

If the New Zealand Medical Council recognised multiple medical colleges as competent to supervise New Zealand's medical workforce within the same areas, then competition between those colleges seeking members in New Zealand would expand the number of supervisors available to train overseas graduates.

If say an organisation like, say, the Colleges of Medicine of South Africa could assess the competency of Anaesthetists for New Zealand and had the incentives to expand their services to New Zealand, then both they and the Australia and New Zealand College of Anaesthetists (which is the sole provider of assessment competency) would compete for members and expand training.

And they would also act as peer review bodies on the competency of the other organisation's training too, expanding both the number of trainees and quality of training.

It's a neat idea. 

James, who wrote his thesis under Seamus back in the day with mild ancillary support from me, was having some trouble getting this into Disqus. I'm going to have to find a day some time to fix this. I have been saying that for years though. Disqus isn't integrated into the mobile version. 

But whenever I start thinking about it, the project balloons. None of the blog formatting is right. And really, shouldn't it be a part of a bigger site with links through to all of my columns and reports and stuff? But there's just so much of that and it would be a big job. Or maybe it should all be a Substack; they'd sent an email encouraging me to flip to them. But how would that even work? And anything would wind up breaking links. 

And then the dread. And then I don't. 

James says I should just pay somebody to sort it all out. He could be right. 

Barriers to building

Nikki Mandow continues to go through the barriers to entry in building materials supply. ($)

Elephant Plasterboard managing director Kevin van Hest has been importing his equivalent products for 34 years. He no longer gets angry when people ring him up and ask if he’s got any GIB. With the panic over plasterboard shortages, it’s happening every day.

“The word GIB has become generic. People think if it’s not GIB it’s a different product. People should call it ‘plasterboard’ on building consents and people should have a choice.”

One of the things that frustrates van Hest is council rules mean only one brand of product can be specified on the plan at the consenting stage. 

And once the plans have been approved, it’s hard to change the specified product - particularly when it comes to plasterboard.

“For some reason plasterboard is the holy grail of not to switch.”

In other countries the consent documents use the term ‘or equivalent’, or you can specify more than one brand,” van Hest says. 

“In New Zealand for years it said ‘no substitution allowed’. We still see that sometimes.”

There’s a reason for that. The leaky building scandals in the 1990s arose partly because less stringent regulations allowed developers and builders to use cheaper, less suitable construction materials. 

Councils which were often the last man standing for liability, had to fork out millions of dollars and became unsurprisingly unwilling to consent anything but the tried and true.

If the Commerce Commission isn't laser-focused on Council incentives under joint and several liability and ways of fixing that, it's wasting everyone's time.  

Nikki's piece likely ungates tomorrow; it's well worth reading if you're following this one.

I'm hopeful that the ComCom report on supermarket competition means they're very willing to weigh legislated barriers to entry. But the widespread media and political response to that report is a worry. Radio New Zealand in particular has been egregious. Because the report didn't call for big beatups on the supermarkets, it just doesn't feel like enough to people who are unable to think. And I hope that ComCom isn't sensitive to that kind of political pressure. 

Portent

My column from Friday's Insights newsletter:

Carbon prices are the best way of getting us to Net Zero. The Emissions Trading Scheme can get the job done if the government lets it.

This week’s petrol tax holiday is a worrying portent.

Politics has always been the biggest risk facing the ETS.

Carbon prices have quadrupled over recent years, to little fanfare. But what would the government do if carbon prices jumped from $70 to $120 in a hurry? Would it let carbon prices adjust while finding ways to help poorer families? Or would it throw sand into the ETS’s workings and force up the overall cost of reducing net emissions?

The Initiative has advocated a more sustainable approach for reducing that risk.

The government will earn over a billion dollars auctioning new credits into the ETS this year. It could tally its expected ETS earnings, split the money five million ways, and give each family of four a carbon dividend of just over $1000 – right now.

The best way of adapting to permanently higher energy prices is different for each of us. Government cannot know what is best for you and your family. A carbon dividend would help each household adapt in ways suited to its own circumstances. The ACT Party announced its support for a carbon dividend on Sunday.

Increasing carbon prices would then mean a bigger carbon dividend for Kiwi households, helping families adjust while protecting the system.

At the same time, a better ETS price cap would reduce the risk of serious carbon price spikes.

If our carbon prices rose to match prices in reputable international markets, like Europe’s, the government could buy carbon permits there to sell here. Our prices could then never rush ahead of prices elsewhere, reducing the political risk to the ETS while reducing the cost of reaching Net Zero.

The case is now more urgent. We have had a warning that our government responds badly to rising energy costs.

Nothing in the past weeks’ rising petrol prices is due to carbon charges. But being able to adapt to permanently higher energy costs matters.

The government could have announced a carbon dividend or found other ways of supporting poorer households.

Instead, it chose to meddle with prices, in a knee-jerk response to a small hit in the political polls.

It does not bode well for our path to Net Zero.

Doctor cartel

For years it's seemed that how New Zealand's medical system treats foreign-trained doctors is best explained by the crudest cartel model. 

If you've designed a pathway for foreign-trained doctors to practice here that depends on a critical chokepoint, availability of supervised practice roles, that you know damned well will never work because all the spaces are allocated to fresh NZ grads, how is that legal? 

My column in today's Stuff papers:

Here is how the trick works.

Imagine that you are a 50-year-old doctor with decades of experience, wanting to move to New Zealand and set up practice for the long term. You go to the Medical Council of New Zealand’s website. It provides a helpful flow-chart.

You did not graduate in New Zealand or Australia and you do not have a medical degree from the UK or Ireland, so tick those boxes. You have not previously been registered here – your career has been based elsewhere. You have never had an Australasian Fellowship, so you do not have an approved postgraduate qualification. Tick those boxes too.

You will be required to work under supervision.

If you are lucky, you are a general practitioner from Europe, Canada, the United States, or Singapore allowed to work under the supervision of another GP through the Comparable Health System pathway. You will have to find a General Practice office willing to serve as your supervisor.

If you are unlucky, you are not from one of those countries, or you are a specialist. General practitioners from other countries must pass the registration exam, then find a supervised position. Specialists must work under supervision for six to 18 months.

It all sounds like it makes sense and is designed to ensure that doctors are up to spec. Except for one small detail.

There are effectively no positions available for foreign doctors to do the required supervised work in New Zealand hospitals.

Ripu Bhatia reported last week that at least 150 foreign-trained doctors are in New Zealand right now and would like to help.

Doctors who have passed their New Zealand exams and done everything they are supposed to do to be able to practice here are not able to do so.

The rules require that they work under supervision. But the system seems designed to throttle the number of doctors entering the system.

Limited supervised slots are available and most are allocated to recent New Zealand medical graduates.

In a better world, statutory regimes would not be exempt from cartel investigation and prosecution.  

Paying for tourism

New Zealand's likely to be getting tourists again this year with the border re-opening. Not a bad time to revisit the idea of running proper access fees at congested venues. 

I'd noted it here last year, after I gave a talk on this stuff at Otago University's Tourism Policy conference in Queenstown. 

I'd had to dig up my old notes from that talk for another purpose and realised I'd never put them up anywhere else. 

So I'll paste them here. 

I never deliver the talk I write down ahead of these things; I always ad lib. But the notes give a decent idea of what I likely covered. I'd sent this version through to the organisers ahead of time. 

Net Benefit Tourism: Covering the Costs

Address by Dr Eric Crampton, Chief Economist, The New Zealand Initiative, to the Otago Tourism Policy School 2021.

[Or, rather, notes for such an address – check against delivery. My talk will be on the themes here developed, but I don’t memorise or read speeches.]

Imagine for a moment that the grocery store here in Queenstown ran on the same principles that underpin New Zealand’s tourism framework.

We would have substantial government-funded advertising regimes encouraging people to get out to the grocery store, noting the fabulous products that could be on offer.

People would have to pay their own way to get to Queenstown, and to get from the airport to the store.

But when they would get to the store, half of the aisles would be an utter disaster. The products in those aisles would all be priced at zero dollars. Customers would be queued for glimpses of the products, and the aisle itself would be rather run-down. Products in other aisles would be priced normally, but the congestion and mess resulting from the freebie aisles would make the whole place just a little tawdry.

It’s pretty easy to imagine how people would react to having to shop at that store. They’d want government to step in to limit the number of people who might shop there. They’d want tough measures to make sure that locals who needed to shop there weren’t crowded out by other visitors coming in for all the free products. And nobody would be happy. We would have conferences on how we might ensure that grocery customers pay their way, and figuring out rationing mechanisms for the products in those messy aisles.

When we put it that way, the problem is pretty obvious.

Until the past couple of decades, getting to New Zealand was expensive enough relative to incomes that congestion really could not be much of an issue. When there aren’t many visitors, figuring out how to charge for access to parks, or how to cover the infrastructure costs of tourism in places like Fox Glacier, didn’t really come up.

There is no point in setting up property rights or pricing mechanisms for things that are in infinite supply relative to demand. Students of economic history and the history of economic institutions will know Harold Demsetz’s 1967 work that described the evolution of property rights regimes among the North American First Nations. Prior to Europeans’ arrival in what is now Quebec, beavers were hardly scarce; their meat was of little value, and locals requirements for furs were small. So no hunter much impeded on other hunters’ ability to get on with things. After the arrival of Europeans with insatiable appetites for beaver furs, property rights in trapping grounds were established and enforced. Establishing and enforcing those rights is hardly free. But it became worth the effort when demand conditions changed.

In 1990, New Zealand accommodated just under a million visitor arrivals. In 2000, 1.8m. 2010: 2.5m. 2019: 3.9m. Central government collected about $1.8 billion in GST from those visitors in 2019. In recognition of the costs that large numbers of visitors can impose on specific communities, the government provides a $25 million annual fund for infrastructure projects in tourist-facing places.

When the number of visitors quadruples, the country starts needing better ways of managing access to things that are scarce. Some things that had been free to access might just need an access fee. And there are ways of doing it that improve outcomes for locals, rather than making things worse.

I hope that New Zealand’s vaccination programme proceeds at a fast pace and that the country can reopen to travel in the near future. Getting some better mechanisms in place to cover the costs, though, would put the industry on more sustainable footing.

Currently international travel is not covered by the emissions trading scheme; there has not yet been international consensus on how to divvy up carbon charges between countries. That has led to arguments that travel should be restricted to reduce international aviation emissions. But another way of thinking about it is that the carbon emissions in a ticket from London to Auckland would cost about $50 if they were covered by New Zealand’s ETS. Does it make more sense to try to centrally plan visitor numbers, or does it make more sense to find ways of adding a $50 carbon charge to a ticket? International agreement is best, but it isn’t hard to imagine putting international aviation fuel into the ETS - Increasing New Zealand’s net emissions cap commensurately, but maintaining the same path to net zero. If someone then decides that travel isn’t worth the cost, where the cost includes the carbon charge, isn’t that a better way of sorting out which travel might really not be worthwhile?

Once travelers get here, they face a lot of parks and attractions that carry no charge but that are under substantially increased pressure.

I grew up in Canada. There, if you want to visit the national parks, you have to buy a national parks pass. The annual pass doesn’t cost that much, and is a rather good bargain for locals would use it year-round, but amounts to a very high per-visit fee for foreign tourists. The government could run a similar system here, but with explicitly much higher charges for foreign visitors than for locals, and use the collected revenues to improve the facilities for everyone.

For other facilities, the Department of Conservation could auction concession rights under a restriction that access by locals has to be at very reduced fees. Again, those kinds of systems would help fund far better services in congested places, with better services for locals being funded by visitors. When visitor numbers are small, it wouldn’t be worth it. But it can make a lot of sense in places where visitor numbers are higher.

Local councils face high costs in trying to build and maintain infrastructure necessary for dealing with surges in tourist numbers on small tax bases. That has driven demand for measures like bed taxes in places like Queenstown. But that doesn’t really solve the problem. Plenty of places without beds to tax face similar problems: Fox and Milford, for example. Bed taxes would never cover the costs in those places.

And bed taxes come with their own substantial risks. Imagine that every town set its own bed taxes. Imagine further that a tourist couple, who would entirely be covering their own costs if the GST they paid were considered, get a thousand dollars in value from a driving tour across the country. Is it that hard to imagine successions of bed taxes that wind up charging more than the value the couple gets from the whole trip?

This is actually a known problem in economics, and I’ll turn again to economic history. In the 1250s, ships traveling the length of the Rhine River had to stop at 12 toll stations along the course of the river, but a lot of informal toll-stations were set up by robber barons along the way too. Each site wound up charging far higher fees than would have been optimal, effectively trying to extract the entire value of a trip at each point along the trip. And, of course, this hold-up problem resulted in far too little travel, hurting all the cities along the way, and the League of Rhine Cities wound up laying siege to some of the robber-baron castles. Having one price for the whole trip, rather than having each segment of the trip extracting high and uncoordinated fees, can make more sense.

And surely where tourists are contributing on the order of $1.8 billion a year already in GST, it makes more sense for central government to use that revenue to defray the costs that tourists impose in different parts of the country. The Tourism Infrastructure Fund seems only a drop in the bucket.

I tend not to write conclusions for these in advance but sum up instead based on the vibe of the rest of the conference. So forgive its dropping off abruptly. 

I've vague memories of a bed-tax-proposing Mayor insisting he wasn't a robber baron though. 

Fixing supermarkets with Gosplan

Somebody at Radio New Zealand really really hates the supermarkets, has absolutely no clue about economics, or both. 

Last year, they'd put up a pretty daft news story quoting some Otago marketing lecturer on how supermarkets should be regulated as public utilities. It's dumb off the start; there's no natural monopoly component here, nothing suggesting subadditivity in costs. He wanted rate of return regulation. 

Whoever wrote the piece for RNZ didn't sign it. 

This week, they decided to syndicate a column from The Conversation, from the same marketing lecturer, again pitching that the supermarkets be regulated as public utilities.

As public utilities, individual supermarket sites should only be allowed to charge a single fixed and publicly stated margin on the goods they sell. This is a novel requirement, but it is core to the process of regulating a supermarket as a utility.

...

Producers and suppliers should not be overlooked in this new regulatory regime. The concentration of wholesalers allows large businesses to dominate non-retail food sectors such as restaurants.

The primary outcome of this - a lack of difference between supermarket retail and wholesale prices for food products - is noted in the Commerce Commission's materials.

Wholesalers should not be allowed to discount products for individual buyers. At the same time, wholesalers should not be allowed to decline service to any buyers at that price unless they can demonstrate that the goods in question are not available and cannot be procured.

Where to start.

A big part of the fight at ComCom was around calculating rates of return. How capital costs get treated matters. How land costs under the supermarkets are counted matters. There are piles of complex lease agreements around those that need to be worked through, and would themselves be endogenous to whatever stupid rule you set to regulate rates of return. 

It isn't straightforward. 

And then this guy wants to run it product-by-product as some kind of mark-up regulation with a fixed mark-up on each good? How's that going to work? Different goods have different turrnover. A foot of shelf-space that turns over three times a day pays for itself differently than a foot of shelf-space that turns over once every three days. 

The policing of this kind of thing would be impossible. If you force a single markup on all products based on the price at which the retailer bought it, you force slow-moving goods off the shelves. If you allow some measure of the cost of shelf-space to enter in, you're going to be chasing your tail forever in policing it. It's just so impossibly stupid.

But Radio New Zealand loves that kind of thing. The editor who picked this one longs for Gosplan. 

Wellington water is a regulated utility. Who'd look at that and say, "Wow. If only the supermarkets were every bit as good."

Barriers to entry - building materials edition

The Commerce Commission's final report on grocery market competition makes me more hopeful that the Commission will weigh entry barriers in its report on building materials.

We'd submitted on it in February, before the grocery report came out. 

Nikki Mandow summarises some of the submissions over at Newsroom. 

The Property Council was one of several submitters that put local councils, and their aversion to risk, at the heart of a lack of innovation when it comes to building materials. 

The disastrous leaky building and other issues of the 1990s and early 2000s were in part a result of using the wrong building materials, and often left councils the ‘last man standing’ as developers and builders bailed. Ratepayers forked out millions of dollars to fix the problems and as a result councils closed their doors to innovation.

“Councils fearing joint and several liability guard against the downside risk of less familiar materials; they see none of the upside benefit,” New Zealand Initiative chief economist Eric Crampton said in his submission. 

“Council risk aversion, caused by liability rules, creates a regulatory barrier to entry against novel building materials unless those materials provide a very substantial advantage over existing materials in large-scale developments.”

At the same time, architects and engineers, knowing it will be harder to get council building consent if they use unknown products, stick to familiar materials used in familiar ways, Crampton says.

“Easing formal regulatory constraints and informal consenting barriers is critical.”

Work commissioned by MBIE a couple years back showed that in 48% of cases resulting in awards of damages, Councils were on the hook for 100% of the cost. If a builder uses something new, council gets none of the upside and all of the risk. Why would we expect sensible outcomes out of that structure?

NZ Initiative’s Eric Crampton doesn’t mince his words when it comes to questioning where the Government’s priorities - and taxpayer money - would be best directed.

“The commission could spend all of the coming year exploring vertical separation of material retailers, builders, and material manufacturers; estimating profit margins in any of those businesses and deciding whether they are high relative to overseas competitors; arguing with existing businesses about how the Commission has failed to account for differences affecting weighted cost of capital and profit margins here as compared to abroad, and tying up critical staff in each of those companies for months when they should be helping to get more houses built.

“Or, it could spend the coming year delving deeply into the regulatory and consenting constraints that may together form a substantial barrier to entry. It could make recommendations that would enable far stronger competition from overseas material suppliers and developers. And it could thereby help open the market so better houses could be built more cost-effectively.”

The deadline for the commission to deliver the final report is December 6.

Fingers crossed we'll wind up being able to parallel import houses and put them up across the country.  

In praise of tutoring

We all know that JS Mill had some of the world's smartest people as his tutors, including Jeremy Bentham. 

It may be more general among historic geniuses.

Spanning kingdoms and continents aristocratic tutoring had a several-millennia long run. If we fast forward almost 2,000 years we can find Bertrand Russell, one of the undeniable geniuses of the 20th century, who was a classic case of aristocratic tutoring—raised by his rich grandparents, he didn’t even attend school until he was 16, and had a revolving door of tutors to equal Marcus’s. Many of whom were impressive scientists and intellectuals in their own right, e.g., J. Stuart, one of Russell’s tutors, had himself been a student of Lord Kelvin (that “Kelvin”). 

Shame that tutoring like this doesn't scale. 

Real Business Covid, revisited

Back in May 2020, I'd noted that a lot of what was going on looked an awful lot more like an adverse supply shock than like a traditional Keynesian demand shock, and that the two need different treatment.

What are the stylised facts of the current mess, at least for NZ?

• Massive negative technological shock across a broad range of sectors meaning that existing combinations of labour and capital are far less productive than they once were. Restaurants need more space to accommodate the same number of clients, or fewer clients in the same space. Factories, meatpacking plants, and offices need more spacing between workers. Some of this shock will be temporary - we will eventually get to Alert Level 1. But even then some of the shock will be longer-lasting: the international arrivals lounge will be very different when folks coming in from Covid-places have to shunt over to a quarantine facility and have to be kept separate from those coming in from Australia. 
• A collapse in tourism that feels a lot more like a huge negative price shock to an export commodity than it does like any domestic aggregate demand problem. If world milk prices dropped by 95%, we wouldn't dream of trying to solve it with domestic "drink more milk!" campaigns.
• Supply chain issues that also feel like a negative tech shock.
• A shock to work arrangements for office types now more able to work from home; many of us will take advantage of it for as long as possible, with consequent effects on demand for lunches in town. This isn't a normal kind of AD shock - just giving people more money wouldn't increase demand for lunches in town when people prefer to work from home and are now allowed to do so. Some of this could persist for a long time if firms have discovered that a lot of workers are no less productive when working from home and prefer working from home.  
• Jump in unemployment consequent to all of that.
• Oh, and a massive drought in some dairying parts of the country - the exemplar RBC shock. 
• Shifts in consumer demand to online. 

Am I missing anything there? None of that would argue for accidentally contractionary monetary policy - RBNZ needs to keep us within the inflation bounds. 

But this is way different from the GFC. We could yet get GFC messes out of Europe, but I don't think we're there yet. Fingers crossed. The underlying problem is a massive terrible tech shock. And that puts us into RBC land.

Sharon Zoellner provides the ex-post evaluation:

Zollner​ said ANZ analysts predicted inflation would peak at 7.4 per cent this year.

With the Russian invasion of Ukraine further entangling global supply chains, and the Omicron variant present in key trading partner China, tough times were ahead for the economy, she said.

“The upshot of all of this is we are seeing a highly inflationary negative supply shock, not a very deflationary negative net demand shock. Oops, because the central banks responded as if it was the latter,” Zollner​ said.

Remember that the 2021 RBNZ Annual Report mentioned carbon more often than it mentioned inflation. Carbon shows up 23 times. Inflation, 19 (including the four mentions of price stability). 

Gas tax holidays and declining oil prices

I'd wondered how much of the excise reduction would wind up being passed through if supply had become relatively inelastic. The government squared that one with threats to the petrol companies about the government's expectations. 

That would have to wind up squeezing margins, if the cost of getting extra units in wound up being substantial. 

Newshub asked me whether I expected declines in oil prices to be passed through. I do, but if the excise reduction meant a sharp constraint on those margins, then it could take a bit longer than it normally does.

The bit of context didn't fit in the space they had available, alas.  

Triage

Not enough hours in the day.

The government is consulting on a pile of ways of making the country a worse place.

A container deposit scheme that would have us all hauling empty bottles to machines in supermarket parking lots to get $0.20 deposits back, rather than having them collected in our regular recycling, backed by a report claiming that Kiwis would get $912 million in intangible benefits from willingness to pay for that more trash is recycled. I put a lot of value on not having to haul trash around in the car, but the report doesn't care much about that. I'll wind up just paying the couple hundred bucks a year in forgone deposits. On the plus side, while I currently would never litter, the new scheme would mean that starting littering would provide some kid an opportunity to earn $0.20 per bottle. Maybe I should start. I'm a charitable guy. 

A reimagining of the entire research funding system that seems more concerned about addressing ethnic and cultural concerns than about science. It looks like it was written in a rush. It's going to wind up breaking things. It's hard to know where even to start on this one.  

Breaking the Road User Charging system by trying to make it also deal with climate change, when transport emissions are already in the ETS and covered by carbon charges in fuel.

The Commerce Commission is entertaining suggestions from the media companies that they should be able to collectively bargain with Google about their inclusion in search results. Submissions closed in December; I don't think I had time to hit that one except in a column. The Ministry for Culture and Heritage seems to love the idea, but seem to be ignoring the report they'd commissioned that concluded there was no strong case for following Australian approaches. 

Will be sure to stock up on drink before the stupid container scheme comes in. Expect I'll need more of it. 

Afternoon roundup

The tab-closing worthies:

• ACT supports a carbon dividend. Good!
• I had to point a lot of people at this last week on Twitter. The 2018 TWG's advice about GST. Says the same thing as the prior National Government's TWG. Good backgrounder for those needing background.
• Peter Martin worrying that Australia picks up NZ's stupid excise holiday.
• Matt Nolan also doesn't like the excise holiday.
• A helpful reminder that at least some of lockdown's costs were inframarginal.
• The borders are opening. Hope there's more hospital capacity by then, or that visitors are provided with appropriate warnings.
• Rotorua asks to be counted as a Tier 1 City, so it can more easily build houses. It's a fun one to think about. Nothing in the Medium Density Residential Standards rule applied to Tier 1 centres is outside of Councils' ability to do on their own. They could upzone on their own. Perhaps best to think about it as a way of binding to broad upzoning, and avoiding the salami-slices that councillors might otherwise be pushed into?
• Larry Summers worries we're heading for stagflation. I wish I had confidence that RBNZ has the competence to navigate the waters ahead.
• Running urban development through environmental planning processes gives NIMBYs lots of room to veto things. Here's Will Rinehart on how it plays out in California under the California Environmental Quality Act. Sounds a lot like New Zealand's Resource Management Act and its problems. PRI has reform suggestions for California.
• Nobody expects the Royal Society's inquisition. Fortunately, it has now been dropped. 

Gas tax holidays

A temporary petrol tax holiday is a stupid way of responding to cost-of-living pressures.

It's what hundreds of economists argued over a decade ago, when Hillary Clinton and John McCain pitched the idea in 2008.

It was dumb then and there; it's dumb here and now. 

My column in Newsroom this week, now ungated.

All up, adjusting petrol excise when global oil prices change makes little sense. It would have made no sense to hike excise in response to very low oil prices at the beginning of the pandemic, and it makes no economic sense to reduce them in response to high current oil prices.

But that does not mean that the Government should do nothing.

Carbon prices are not to blame for the current oil price shock. But we should expect carbon prices to rise as the Government moves toward Net Zero. Carbon charges will impose a larger burden on household budgets.

And, unlike petrol excise, Government will profit from rising carbon prices. The Government intends to auction 19.3 million tonnes of carbon credits over the coming year – with more credits held in reserve in case the price cap is hit.

If the Government can sell a tonne of carbon credits for $72, it will earn just under $1.4 billion through this year’s auctions.

Currently, government ETS revenues are earmarked for climate activities. But programmes targeting emissions that are already covered by the ETS cannot reduce net emissions unless the Government also reduces the number of credits that it auctions. And a strong majority of Kiwi economists agree it is less costly to just reduce the ETS cap without implementing policies targeting emissions that are covered by the ETS.

The Government could instead take the money it earns at ETS auction and return it to Kiwi households, to help them respond to rising energy costs. The payment to a family of four would be just over $1,000, at current carbon prices.

This kind of carbon dividend would be better than slush-fund expenditures like electric vehicle subsidies for helping mitigate any undesirable distributional effects of rising carbon prices.

It certainly would not solve all of the problems caused by high inflation and by a global oil shock. But it would help households start adjusting to higher longer-term energy costs. And it makes more sense than a temporary excise holiday.

Unfortunately, yesterday’s announcement also suggested that the Government has a few other things planned for the money it earns at ETS auction.

At the same time, low-income households very likely bear a disproportionate burden from current petrol excise. A 1995 Toyota Estima does not impose any greater wear and tear on the road than a 2022 hybrid Toyota Rav-4 but pays an awful lot more to use the roads. Shifting petrol vehicles to road user charges would help undo a substantial inequity in the current road funding system and ease the burden facing households that have not yet been able to afford an upgrade.

Nothing can really cushion New Zealand from global oil price shocks. There were sensible approaches the Government could have taken to ease some of the burdens. A temporary excise holiday is not one of them.

I'd also chatted with Kate Hawkesby at Newstalk early Tuesday morning and with RNZ's The Panel on Monday afternoon about it.  

If this is what the government does when spooked by one bad poll, the path to Net Zero's going to be messy.